Corporate practices faced big tests in 2014

It's been a challenging year for corporate governance. It began ominously as speculation mounted about the reasons behind the very public suspension at the end of 2013 of John Oliphant from the Government Employees Pension Fund (GEPF).

Oliphant had used the considerable muscle that comes with heading a R1.4-trillion pension fund to push for improvements in corporate governance standards in South Africa.

Things got worse in May when Elias Masilela, CEO of the Public Investment Corporation, which manages the GEPF's money, abruptly parted company with the country's most powerful fund manager.

The continued absence of an explanation for the moves has fuelled speculation that they were connected to the PIC's determination to divert increasing amounts of money to "transformation" projects headed by well-connected individuals.

Masilela's departure from the PIC coincided with that institution's seeming abandonment of the disclosure - on a quarterly basis - of its voting at AGMs. The disclosure had helped to shine a light on the opaque chain of vested interests that extends between the millions of essentially powerless individuals and the companies into which their funds are invested. The concern now is that without pressure from the PIC, other fund managers will also stop disclosing the details of their AGM voting. This would be a major step back in efforts to make fund managers more accountable to the people whose money they manage.

As things stand, most employees and savers have little idea what happens to their money once it has been handed over to the "professionals". The returns that come through on a monthly, quarterly or annual basis are riddled with loads of detail but little information that is useful to individuals who exist outside the arcane world of investment.

Remember the shock of thousands of individuals who believed they were invested in secure conservative products when they heard about the African Bank side pockets and discovered the previously unknown concept of "breaking the buck"?

African Bank was probably the year's most stark corporate governance failure. The circumstances around CEO Leon Kirkinis's departure showed little sign that the King III principles were being implemented effectively. And the way in which Coronation Fund Managers dumped a large chunk of its 22% stake in African Bank on that fateful August morning should have left no one in doubt that a fund manager's priority is to boost their investment returns at any cost.

Dumping the shares of a failing company that has flouted corporate governance guidelines in an increasingly desperate chase for profit may be entirely reasonable from a fund manager's perspective, but it makes a mockery of the notion of responsible investing. It highlights the considerable flaw in the system of shareholder capitalism that dominates the global economy.

In playing the role of shareholder, a fund manager does not operate like a real owner, who would be inclined to invest in the upkeep and improvement of his asset, but rather like someone who is renting and constantly on the lookout for something better.

Is it even possible to reconcile the fund manager's demand for short-term returns with the longer-term need for shareholders to promote good corporate governance? African Bank bombed because an ineffectual board was dominated by Kirkinis. Where were the shareholders when this was unfolding?

They were probably in the same place most of the PPC shareholders were months later - sitting on the sidelines hoping for an opportunity to dump their shares without taking too much of a loss. As one of the many inactive shareholders remarked about the PPC debacle: "We work with two resources that are limited - money and time - and we use them very sparingly."

Foord and Visio Capital spent a lot of both to achieve an uncertain outcome.

In the process, as the year came to a close, they reminded us that our system of corporate governance works well ... until it doesn't.